Network Effects, Congestion Externalities and Air Traffic Delays

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Empirical Micro Seminar
University of Pennsylvania

3718 Locust Walk
395 McNeil

Philadelphia, PA

United States

We examine two factors that might explain the extent of air traffic delays in the United States: network benefits due to hubbing and congestion externalities. Airline hubs enable passengers to cross-connect to many destinations, thus creating network benefits that increase in the number of markets served from the hub. Delays are the equilibrium outcome of a hub airline equating high marginal benefits from hubbing with the marginal cost of delays. Congestion externalities are created when airlines do not consider that adding flights may lead to increased delays for other
air carriers. Using data on all domestic flights by major US carriers from 1988-2000, we find that excess travel time due to congestion is increasing in hubbing activity at an airport and decreasing in market concentration but the hubbing effect dominates empirically. In addition, hub carriers incur most of the additional travel time due to hubbing, primarily because hub carriers cluster their flights in short spans of time to provide passengers with a large number of potential connections with a minimum of waiting time. Non hub flights at the same hub airports
operate with minimal additional travel time. These results suggest that an optimal congestion tax might have a relatively small impact on flight patterns at hub airports since hub carriers already incur a disproportionate share of the hubbing-related congestion.

For more information, contact Jere Behrman.

Chris Mayer

University of Pennsylvania Wharton

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